SGB 2021-22 Series VII premature redemption due on 2 November: Investors to pocket 200% gains; check RBI quoted price

Investors holding SGB 2021-22 Series VII will be eligible for premature redemption on 2 November 2026, following the completion of five years from the date of issuance. The Reserve Bank of India (RBI) has fixed the redemption price of the Sovereign Gold Bonds (SGBs) at ₹14,167 per gram.

According to the RBI’s press release dated 30 October, the 2021-22 Series VII tranche was issued on 2 November 2021. “Premature redemption of Gold Bond may be permitted after fifth year from the date of issue of such Gold Bond on the date on which interest is payable. Accordingly, the due date of premature redemption of the above tranche shall be on November 02, 2026.”

Sovereign Gold Bonds are government securities denominated in grams of gold and issued by the RBI on behalf of the Government of India. They provide investors with exposure to gold prices without requiring them to purchase or physically store the precious metal.

Here’s what you need to know about the capital gains and interest on the premature redemption of Sovereign Gold Bonds (SGB) 2021-22 Series VII.

How is the redemption price of SGB 2021-22 Series VII calculated?

According to the RBI circular, the redemption price is calculated using the simple average of the closing prices of 999-purity gold over the three preceding business days, as published by the India Bullion and Jewellers Association Ltd (IBJA).

“The redemption price for premature redemption due on November 02, 2026, shall be ₹14,167/- (Rupees Fourteen Thousand One Hundred and Sixty-Seven Only) per unit of SGB based on the simple average of closing price of gold for the three business days i.e., October 28, October 29, and October 30, 2026.”

How much can investors gain from SGB 2021-22 Series VII premature redemption?

According to the Ministry of Finance’s release published by PIB dated 23 October 2021, the original issue price of SGB 2021-22 Series VII was ₹4,765 per gram. Investors who subscribed online and paid through digital modes received a discount of ₹50 per gram, taking their effective purchase price to ₹4,715 per gram.

With the premature redemption price now fixed at ₹14,167 per gram, the capital gains are as follows:

An offline subscriber would make a capital gain of ₹9,402 per gram, equivalent to 197.31% of the original investment. For online subscribers, the gain would be ₹9,452 per gram, translating into a return of 200.41%.

How much interest will investors earn from these SGBs?

Apart from the potential appreciation linked to gold prices, Sovereign Gold Bonds carry a fixed interest rate of 2.5% per annum on the nominal value of the bond. The interest is credited twice a year, while the final interest payment is made along with the redemption proceeds.

For SGB 2021-22 Series VII, the interest is calculated on the nominal value of ₹4,765 per gram. For instance, an investor holding 10 grams of these bonds, purchased at ₹47,650, would earn annual interest of ₹1,191.25 at the interest rate of 2.5%. Over five full years, the estimated interest income would amount to ₹5,956.25.

These calculations assume five full years of interest payments and exclude applicable taxes. Actual interest received will depend on the payment schedule and the investor’s holding period.

Disclaimer: This is for informational purposes only. Please consult a SEBI-registered investment adviser before making any investment decisions.